Wednesday, 23 March 2016

Australian Federal Election 2016: company tax is a vexing question

In 2014 Treasury made a case for a flow-on to the Australian economy from a 1 per cent tax cut “in the long run” and the Abbott Government reduced company tax for small business by 1.5%, effective 1 July 2015.

This meant that in 2015-2016 the following applied:

(a)  a sole trader in Australia pays the same rate of tax as an individual taxpayer with the same tax-free threshold of $18,200 as the individual. Tax rate brackets range from 19 cents in the dollar if taxable income is between $18,201-$37,000 up to 45 cents in the dollar if taxable income is $180,001 and over; and

(b) a small business with an annual aggregate turnover of less than $2 million pays company tax of 28.5% and businesses with a higher turnover pay 30% company tax. The tax rate for companies is less than the highest rate for individuals.

In December 2014 (updated March 2016) the Australian Tax Office (ATO) created its first corporate tax transparency report for the financial year 2013-14 and the companies listed in this report represented 63% of the approximately 1.1 million companies operating in Australia who reported a taxable income in that tax year. The ATO data tables can be found here.

In 2013-14 company tax was an est. 28% of total income tax revenue received by the federal government and, according to the ATO companies paid total net tax of $67.3 billion.

On 22 March 2016 the ATO released taxation details of 321 private resident companies with listed revenue of $200 million or more in that same financial year.

Of these 30.52% paid no tax and another 31% paid less than the full company tax rate.

Using ATO data the Australian Financial Review published a table of 1,860 companies - with total annual incomes between $100 million and over (public/foreign-owned entities) and $200 million and over (private entities) - which showed that when tax was actually paid the taxation rates for these businesses in practice ranged from as low as 1%-2.5% up to 30%, with only an est. 30 per cent of all these companies paying the full company tax rate.

Yet with an est. 70% of these 1,860 companies not being liable for the full company tax rate and net company tax collected falling to $66.9 billion in 2014-15, the Coalition Government still appears to be hinting that it will consider reducing the company tax rate for a second time.

The Sydney Morning Herald also reporting on 21 March that: Big business wants the rate paid by larger corporations cut to 28.5 per cent to match the rate paid by small companies, and phased down to 25 per cent by 2020 and 22 per cent by 2025. This call by the Business Council of Australia (see paper precis) appears to be backed by some in the small business sector.

Are Turnbull & Co really thinking of giving in to a greedy cash clawback by big business, some of whom are generous political donors?

The prime minister refuses to be drawn before the 3 May 2016 budget papers are released.

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